1. State (at least) one benefit of debt and (at least) two costs of debt, according to the Tradeoff theory of capital structure.

2. If the yearly Sharpe ratio of an ETF is 0.4, then what would be the monthly Sharpe ratio approximately ?

3. Big Mac Autos is presently enjoying relatively high growth because of a surge in the demand for recreational vehicles. Management expects earnings and dividends to grow at a rate of 25% for the next 4 years, after which high gas prices will probably reduce the growth rate in earnings and dividends to zero, i.e., g = 0. The company’s last dividend, D0, was $1.25. Big Mac’s beta is 1.20, the market risk premium is 6.00%, and the risk-free rate is 3.00%. What is the current price of the common stock?

$26.77

$27.89

$29.05

$30.21

$32.27

4. Today, you turn 21. Your birthday wish is that you will be a millionaire by your 40th birthday. In an attempt to reach this goal, you decide to save $25 a day, every day until you turn 40. You open an investment account and deposit your first $25 today. What rate of return must you earn to achieve your goal?

15.07%

15.13%

15.17%

15.20%

15.24%